Brenthurst Foundation Executive Director Dr. Greg Mills

Brenthurst Foundation Executive Director Dr. Greg Mills and Colgate University President Jeffrey Herbst have just released their new book How South Africa Works – and Must Do Better. It’s a ‘state-of-the-nation’ analysis of why the country finds itself at such a difficult pass and it also sets out a number of solutions.

Isn’t the book’s title misleading? After reading it, I came to the conclusion that large parts of South Africa don’t work at all.

That’s why there’s a subtitle! Things work for a reason and they also don’t work for a reason. What we have tried to do is to understand those reasons and then try and see if we can put together an agenda which might mean it could work better for the vast majority of people. There is much to be celebrated over the last 21 years and we often forget about the journey that we’ve travelled, about the inheritance of 1994. Think of it in terms of a company merger: in 1994, we had to integrate seven armies and five different administrations, while at the same time try to make the system fairer, more equitable, and meet very high expectations. Simultaneously, we had to end isolation from the global economy and democratise. It was never going to be an easy task.

Brenthurst Foundation Executive Director Dr. Greg Mills and Colgate University President Jeffrey Herbst have just released their new book How South Africa Works – and Must Do Better. It’s a ‘state-of-the-nation’ analysis of why the country finds itself at such a difficult pass and it also sets out a number of solutions.

But, we argue that for all of that difficult inheritance, things have not gone as well as they could have. The foundations of the improvements that we have experienced are shaky, including the reductions in poverty, which are notable. Poverty has been reduced through the extension of the welfare system to 16 million South Africans, up from just two million beneficiaries in 1994. And the rise of the black middle class has fundamentally relied on the expansion of the civil service and the inflation of those salaries. The number of civil servants has risen nearly threefold to 3.1 million people in just 21 years. Hence we argue that the foundations are shaky, because it’s pushing public debt ratios towards unsustainable margins, just under  50% of GDP, for example. As Pravin Gordhan himself has warned, this puts huge pressure on the economy, puts huge pressure on interest rates, and over the long term, undermines the economy’s growth prospects.

So what is the key issue?

The fundamental issue, which the book confronts, is joblessness. It threatens to be the new apartheid, where life chances are determined largely by access to formal employment. And if the employment crisis is not addressed, it’s not going to be possible to lift millions of people out of poverty. Consider the Arab Spring, which was fuelled in part by youths who believed they had no future. South Africa’s stability cannot be assured with nearly 70% youth unemployment. So the book focuses on the sustainability of the current approach, on the one hand, and the jobs/employment crisis on the other. The core question: what more can be done to create jobs, or what can be done differently?

 Your answers?

 We look to a variety of means to increase employment and need to have a shared mission between the public and private sector to be able to do this. This has been very difficult to achieve in the past because of a range of issues. One is apparently irreconcilable ideological differences between business and government. A core group within government clearly has difficulty in accepting the profit motive in business, yet at the same time prefers to lay the blame for the failure to create jobs at the door of business. Business, on the other hand, has a responsibility to keep growing and employing by making a profit. And its principal constituency is not the unemployed, but obviously those who are employed within its ranks and those who invest in such companies.

A second problem has been the way business has structured globally, with a shift towards greater capital and technological investment, and economies of scale. The drive for greater efficiency in production has essentially meant fewer employed people. Government’s instinct, on the other hand, has been to intervene and increasingly regulate business. Yet, given this environment, government’s response should have been to deregulate the labour market, or at least to improve skills levels to enable people to compete further up the value chain. In other words, we can’t have it both ways – we can’t look for the higher value addition parts of the economy and not have the skills to be able to compete in that. And we don’t have enough  skills at the right price, which is the critical part, to be able to compete in the global marketplace.

Where does COSATU fit into this?

COSATU is a key constituency within the tripartite alliance and government has modified its policies to manage that key constituency. Yet the volatility of labour over the past 10 years in particular, but even over the last 20 years, should have led to the utility of that relationship being questioned. We have more strikes now than we had during the era of rolling mass action in the early 90s. You would have to question the value of the alliance as a means of moderating union behaviour in the circumstances.

COSATU is also something of a labour aristocracy. It’s much older than it was back in 1994 and the majority of its members are employed in the public sector, which was not the case in 1994. So it’s essentially dealing with the privileged labour class who are interested in protecting that privilege – not the focus which is required to create jobs in the private sector.

Amidst all this industrial unrest, it’s very hard to improve prospects in manufacturing and other labour intensive sectors where we should be creating jobs. People want to lose employees, rather than take them on. We conducted several hundred interviews across the country and across business sectors, and the drive to reduce employee numbers rather than take more people on was a virtually universal tendency amongst employers. 

So what needs to change?

The ANC’s preference has been to attempt an à la carte policy selection rather than adopting the full range of measures needed to compete globally. Take, for example, the promulgation of special economic zones in the bid to become more competitive. In fact the entire country needs to become an SEZ per se. We shouldn’t be looking for small zones in which to become competitive. We should be looking to become competitive as a nation within the tracts of policy regime for investors across the country, not just within geographic or sectoral chunks of the country. I would argue that rather than seeing ourselves as a kind of special-super-attractive-investment-zone, we’re drifting in the opposite direction. We are losing our competitive advantage in the midst of labour volatility and cost, a shortage of suitable skills, the chronic failure of the education system, unreliable services including electricity, and, now, real concerns and questions about the rule of law. Yet to create jobs on the scale required we have to attract those businesses who can invest anywhere in the world, and who are not only interested in what we have under the ground in the form of commodities.

It is in the ANC’s best interest to reform and to adopt what we see as the solution, which is this agenda for competitiveness, and to focus government, business and labour attention on this agenda. And it’s in the ANC’s best interest to do this for two reasons.

One is sentimental in a sense – to address the liberation from poverty, an historic mission of the ANC. . But second, and more pragmatically, at the last election the ANC received fewer votes than it did in 1994. The party will need to keep an eye on voter apathy, otherwise it may find itself  marginalised by a combination of this apathy and challenges from both left and right. The government, and the ruling party, requires both a vision and a plan to execute that vision.

Is it do-able? Can we save the nation?

It most definitely is, and the cost of not engaging on these issues would be massive. In particular, we are now creating more unemployed than employed. The sweet spot, where maybe we can get some traction, is in a shared competitiveness agenda. Which is to say, hang on, guys, we’re actually all in this together: redistribution by itself is not a long-term strategy for South Africa. We need to have redistribution alongside growth. We need to have growth strategies based on competitiveness. Government, business and labour have to make that growth agenda a reality and – most important – to see each other as partners in this national endeavour.

There is a better way to do this, a more inclusive formula, but it demands government making some difficult choices; after all, that’s what government is about. And certainly since 2008, since the double whammy of Polokwane and the fall of Mbeki, we’ve been unwilling to make these difficult strategic governance and policy decisions. We are suffering the consequences as a result. But dealing with the new apartheid, the difference in the life chances for those with or without a job, is an issue worth fighting for. It will be impossible to build an inclusive society and deal with social problems including crime without creating more jobs.